Todays object of technical analysis is NVIDIA Corporation (NVDA). After one does a thorough job of checking for chinks in the armor on the fundamental side, the work of due diligence is only just beginning. The next step is to make sure the technical character of the chart matches the story in an advantageous way. We will look at some of the key points in that analysis today for NVDA.
First off, when looking at the overall directional impact of recent money flows, we will use the relative positioning of the 50-day and 200-day simple moving averages. In other words, if the 50-day moving average is trading above the 200-day, it is traditionally seen as a bullish chart trend. Conversely, if the 50-day moving average is trading below the 200-day, it is traditionally labeled a bearish direction or bearing.
In this case, for NVDA, that adds up to a bullish designation, which suggests that flows have been working in an overall positive direction on the chart. With that established, the question now turns to whether or not key indicators suggest the action has pushed too far too fast, leading to a statistically likely mean-reversion probability going forward.
For that, we rely on our key overbought/oversold oscillators. There are many out there, but we prefer the 14-day Relative Strength Indicator (RSI) and the 20-day ?fast stochastic?. For both of these measures, if we see a score above 75 (overbought) or below 25 (oversold), history suggests one is wise to expect some reversion to the mean. For NVDA, the 14-day RSI shows a score of 47.35%, while the 20-day fast stochastic shows a score of 14.46%.
From there, we want to next turn our attention to relative performance and volatility scoring, or Beta. NVIDIA Corporation has moved -22.24 over the past month or so. Over the trailing 100 days, the stock is outperforming the S&P 500 by 4.31.
This movement has come on a more volatile bearing from one day to the next relative to the broader market, according to the stock?s 36-month beta. In addition, we can see that the stock?s recent action has come on a historical volatility score of 53.67% (as indicated by taking the standard deviation of returns for a random trading input assuming buying the stock at a given average price during the specified period). Furthermore, the 20-day ATR as a percentage of the 20-day moving average grants another key view into relative volatility scoring. By that measure, we reach a score of 4.32%.
That brings us neatly to an examination of key levels of support and resistance on the chart. For this, we generally bias toward range markets, fib levels, and moving averages. In any of these cases, it?s important to understand that the concept of support and resistance is a bit like what we might call ?social gravity?. It?s a game theory concept. It?s the point where people assume other people will be acting.
Keynes called this type of logic the beauty contest. The idea is based on a fictional newspaper contest in which people are asked to pick which of a series of pictures of womens faces will be the most popular picks for ?most beautiful. Given that the winner will be someone who guesses what other people picked the most, the goal has nothing to do with picking the most beautiful face. It is figuring out which picture the most other people will think the most other people will think is the most beautiful. This is called recursive logic. And it forms the basis for key support and resistance in markets as well.
In short, popular meeting points on the chart tend to be established either where they have been before (range extremes), or at key Fibonacci levels or moving averages. In this case, the critical 38.2% level drawn off the 52-week high of $254.50 sits at $193.76. NVDA also has additional resistance above at the stock?s 200-day simple moving average, which sits at $ 198.87.
Lastly, we need to quickly cover relative volume. Here, we want to examine relative volume measures to get a feel for interest in the stock of late. Right now, this stock has been showing strong relative volume, which indicates interest among those making a market for shares of the stock, and that should be seen as a key factor in drawing conclusions about your level of interest as well.
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